<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-26580
AMERICAN COIN MERCHANDISING, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 84-1093721
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4870 STERLING DRIVE, BOULDER, COLORADO 80301
(Address of Principal Executive Offices)
(Zip Code)
(303) 444-2559
(Registrant's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days Yes X No _____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
OUTSTANDING AT
CLASS AUGUST 1, 1996
----- --------------
Common Stock, $0.01 par value 5,081,608 shares
Transitional Small Business Disclosure Format: Yes ______ No X
<PAGE> 2
AMERICAN COIN MERCHANDISING, INC.
10-QSB
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Income for the Three Months and
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . 4
Condensed Statement of Stockholders' Equity for the
Six Months Ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . 5
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . 6
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN COIN MERCHANDISING, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 1,590,000
Trade accounts and other receivables . . . . . . . . . . . . . . . . . . . . . . . . 938,000 768,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,662,000 3,411,000
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . 298,000 190,000
------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,898,000 5,959,000
------------- --------------
Property and equipment, at cost:
Vending machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,047,000 7,051,000
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,470,000 938,000
Office equipment, furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . 427,000 306,000
------------- --------------
11,944,000 8,295,000
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,706,000) (3,037,000)
------------- --------------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 8,238,000 5,258,000
------------- --------------
Placement fees, net of accumulated amortization . . . . . . . . . . . . . . . . . . . 133,000 20,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 350,000
Cost in excess of assets acquired, net of accumulated amortization . . . . . . . . . . 2,573,000 2,115,000
------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,192,000 $ 13,702,000
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,689,000 $ 406,000
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 270,000 151,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,000 188,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000 1,580,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,000 104,000
Distribution payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 634,000
------------- --------------
4,527,000 3,063,000
------------- --------------
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . 420,000 283,000
Notes payable to Control Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,349,000 1,349,000
------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,296,000 4,695,000
------------- --------------
Stockholders' equity:
Preferred stock, $.10 par value (Authorized 500,000 shares; none issued) . . . . . . -- --
Common stock, $.01 par value (Authorized 7,000,000 shares; issued 5,081,608 shares) 51,000 51,000
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,355,000 8,275,000
Unearned stock option compensation . . . . . . . . . . . . . . . . . . . . . . . . . (67,000) --
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,557,000 681,000
------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,896,000 9,007,000
------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $ 16,192,000 $ 13,702,000
============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
AMERICAN COIN MERCHANDISING, INC. (a)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Vending . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,268,000 $ 3,642,000 $ 12,192,000 $ 7,312,000
Product and services . . . . . . . . . . . . . . . . . . . . 1,369,000 1,903,000 2,625,000 3,489,000
Franchise royalties . . . . . . . . . . . . . . . . . . . . 268,000 367,000 642,000 657,000
Equipment sales and other . . . . . . . . . . . . . . . . . 498,000 403,000 958,000 453,000
------------- ------------- ------------- -------------
Total revenue . . . . . . . . . . . . . . . . . . . . . 8,403,000 6,315,000 16,417,000 11,911,000
------------- ------------- ------------- -------------
Cost of revenue:
Vending . . . . . . . . . . . . . . . . . . . . . . . . . . 4,524,000 2,440,000 8,639,000 4,971,000
Product and services . . . . . . . . . . . . . . . . . . . . 1,090,000 1,631,000 2,142,000 2,878,000
Equipment sales . . . . . . . . . . . . . . . . . . . . . . 471,000 340,000 929,000 377,000
------------- ------------- ------------- -------------
Total cost of revenue . . . . . . . . . . . . . . . . . 6,085,000 4,411,000 11,710,000 8,226,000
------------- ------------- ------------- -------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 2,318,000 1,904,000 4,707,000 3,685,000
General and administrative expenses . . . . . . . . . . . . . . 1,671,000 1,069,000 3,203,000 1,968,000
Commissions and royalties, related parties . . . . . . . . . . -- 86,000 -- 223,000
Interest expense, related parties . . . . . . . . . . . . . . . 27,000 29,000 54,000 73,000
Interest expense, other, net . . . . . . . . . . . . . . . . . 18,000 52,000 37,000 83,000
Minority interest in income of combined affiliates . . . . . . -- 44,000 -- 67,000
Share of loss of equity affiliate . . . . . . . . . . . . . . . -- 8,000 -- 19,000
------------- ------------- ------------- -------------
Income before taxes . . . . . . . . . . . . . . . . . . 602,000 616,000 1,413,000 1,252,000
Provision for income taxes . . . . . . . . . . . . . . . . . . 229,000 -- 537,000 --
------------- ------------- ------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 373,000 $ 616,000 $ 876,000 $ 1,252,000
============= ============= ============= =============
Net income per share of common stock . . . . . . . . . . $ 0.07 $ 0.16
Weighted average common shares . . . . . . . . . . . . . 5,449,000 5,449,000
Pro forma information:
Historical income before taxes . . . . . . . . . . . . . . $ 616,000 $ 1,252,000
Pro forma adjustments to income before taxes . . . . . . . 391,000 866,000
------------- -------------
Pro forma income before taxes . . . . . . . . . . . . . . 1,007,000 2,118,000
Pro forma income tax expense . . . . . . . . . . . . . . . 383,000 805,000
------------- -------------
Pro forma net income . . . . . . . . . . . . . . . . . . . $ 624,000 $ 1,313,000
============= =============
Pro forma earnings per common and common equivalent share
Pro forma net income per share of common stock . . . . . . $ 0.14 $ 0.29
Weighted average common shares . . . . . . . . . . . . . . 4,451,000 4,451,000
</TABLE>
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).
See accompanying notes to condensed financial statements.
4
<PAGE> 5
AMERICAN COIN MERCHANDISING, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
STOCK TOTAL
ADDITIONAL OPTION STOCK-
COMMON PAID-IN COMPEN- RETAINED HOLDERS'
STOCK CAPITAL SATION EARNINGS EQUITY
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 . . . . . . . . . . . $ 51,000 $ 8,275,000 $ -- $ 681,000 $ 9,007,000
Issuance of employee stock options . -- 80,000 (80,000) -- --
Amortization of deferred
compensation . . . . . . . . . . . -- -- 13,000 -- 13,000
Net income . . . . . . . . . . . . . -- -- -- 876,000 876,000
------------- ------------- ------------- ------------- --------------
JUNE 30, 1996 . . . . . . . . . . . . . $ 51,000 $ 8,355,000 $ (67,000) $ 1,557,000 $ 9,896,000
============= ============= ============= ============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
AMERICAN COIN MERCHANDISING, INC. (a)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
------------- --------------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 876,000 $ 1,252,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 762,000 377,000
Share of loss of equity affiliate . . . . . . . . . . . . . . . . . -- 19,000
Minority interest in income of combined affiliates, less -- 54,000
distributions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock options . . . . . . . . . . . 13,000 --
Loss (gain) on sales of assets . . . . . . . . . . . . . . . . . . . 3,000 (10,000)
Changes in operating assets and liabilities:
Trade accounts and other receivables . . . . . . . . . . . . . . (212,000) (69,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (157,000) (1,074,000)
Prepaid expenses and other assets . . . . . . . . . . . . . . . (95,000) (44,000)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 27,000 --
Accounts payable and accrued expenses . . . . . . . . . . . . . 669,000 428,000
------------- --------------
Net cash provided by operating activities . . . . . . . . . . . . 1,886,000 933,000
------------- --------------
Investing activities:
Acquisitions of property and equipment . . . . . . . . . . . . . . . . . (3,265,000) (449,000)
Acquisition of franchisees . . . . . . . . . . . . . . . . . . . . . . . (613,000) --
Proceeds from sales of property and equipment . . . . . . . . . . . . . 20,000 10,000
Placement fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113,000) --
Payments received on notes receivable from related parties . . . . . . . -- 47,000
Payments received on notes receivable . . . . . . . . . . . . . . . . . 7,000 7,000
------------- --------------
Net cash used in investing activities . . . . . . . . . . . . . . (3,964,000) (385,000)
------------- --------------
Financing activities:
Net borrowings on revolving line of credit . . . . . . . . . . . . . . . 1,283,000 330,000
Principal payments on notes payable to related parties . . . . . . . . . -- (141,000)
Proceeds from issuance of notes payable to related parties . . . . . . . -- 22,000
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . (185,000) (375,000)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . 24,000 264,000
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (634,000) (258,000)
Initial public offering costs . . . . . . . . . . . . . . . . . . . . . -- (55,000)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . -- 5,000
------------- --------------
Net cash provided (used) in financing activities . . . . . . . . . 488,000 (208,000)
------------- --------------
Net increase (decrease) in cash and cash equivalents . . . . . . . (1,590,000) 340,000
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 1,590,000 357,000
------------- --------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ -- $ 697,000
============= ==============
</TABLE>
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).
See accompanying notes to condensed financial statements.
6
<PAGE> 7
AMERICAN COIN MERCHANDISING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. (the
"Company") and its franchisees own and operate coin-operated skill-crane
machines ("Shoppes") that dispense stuffed animals, plush toys, watches,
jewelry and other items. The Company's Shoppes are placed in supermarkets, mass
merchandisers, bowling centers, bingo halls, bars, restaurants, warehouse clubs
and similar locations. The Company currently has 23 field offices located in 17
states. The Company also sells products to franchisees. At June 30, 1996 there
were 29 Company franchises in operation.
Prior to August 31, 1995, the date of the Reorganization described below,
certain stockholders of the Company, who collectively own a controlling
interest of the Company (the "Control Group"), owned interests in the eight
affiliated entities (the "Affiliated Entities") which were franchisees of the
Company. Except as noted below, each of the Affiliated Entities began
operations prior to January 1, 1993. The Control Group owned greater than 50%
of the outstanding common stock or partnership interests of seven of the
Affiliated Entities and less than 50% of the eighth, as follows:
Affiliated Entities:
Combined affiliates:
Chicago Toy Company
Georgia Toy Company
Inland Merchandising, Inc. (began operations in June 1993)
Lehigh Valley Toy Company
Performance Merchandising, Inc.
Southwest Coin Company
Sugarloaf, Ltd. (began operations in January 1993)
Equity affiliate:
Sugarloaf Marketing, Inc.
Due to the common controlling ownership, the accompanying financial
statements include the accounts of the Company and the combined affiliates
(collectively referred to as the "Combined Companies") through August 31, 1995.
All material intercompany balances and transactions have been eliminated.
Through August 31, 1995 the Control Group's interest has been accounted for as
equity of affiliates and the other stockholders' interest has been reflected as
minority interest. As such, the assets and liabilities of Combined Companies
have been accounted for in the financial statements based upon their historical
costs through August 31, 1995. The financial statements account for the Control
Group ownership interest in Sugarloaf Marketing, Inc. using the equity method
of accounting through August 31, 1995.
On August 31, 1995, the Company acquired substantially all of the
inventories, property and equipment, and assumed certain facilities leases,
which are operating leases, and contracts of the Affiliated Entities in
exchange for promissory notes in the principle amount of $8,983,000 (the
"Reorganization"), of which $7,634,000 was paid from the proceeds of the
Company's initial public offering in October 1995. The remaining promissory
notes in the principle amount of $1,349,000 are payable in 1997 and 1998. As a
result of the Reorganization, assets attributable to the Control Group's
interest have been accounted for similar to the pooling-of-interests method of
accounting for business combinations. Assets and liabilities which were
retained by the combined affiliates in the Reorganization have been accounted
for as distributions to the combined affiliates. Amounts paid to the combined
affiliates attributed to the Control Group interest have been accounted for as
a distribution for financial reporting purposes. Assets transferred
attributable to the non-Control Group members (the minority interest in the
combined affiliates and the majority interest in the equity affiliate) have
been accounted for using the purchase method of accounting for business
combinations. The Company has recorded approximately $1,964,000 in costs in
excess of assets acquired as a result of the transfer of assets attributable to
the non-Control Group. The Reorganization was a taxable transaction for income
tax purposes, and accordingly, the Company has a tax basis in the transferred
assets in excess of that for financial reporting.
The accompanying unaudited condensed financial statements have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have
7
<PAGE> 8
AMERICAN COIN MERCHANDISING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
been condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed financial
statements be read in connection with the financial statements and notes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1995.
In the opinion of the Company, the accompanying condensed financial
statements include all adjustments (consisting of normal recurring accruals)
required to present fairly the Company's financial position at June 30,1996 and
December 31,1995, and the results of its operations for each of the three month
and six month periods ended June 30,1996 and 1995, and the cash flows for each
of the six month periods then ended.
The operating results for the six months ended June 30,1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.
2. SUPPLEMENTAL DISCLOURE OF CASH FLOW INFORMATION
A schedule of supplemental cash flow information follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
---- ----
<S> <C> <C>
Cash paid during the period:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,000 $ 156,000
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . 510,000 --
Significant noncash investing and financing activities:
Equipment purchases financed with debt . . . . . . . . . . . . . . . 54,000 --
Notes payable issued for acquisition of franchisee . . . . . . . . . 363,000 --
</TABLE>
3. EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares include the dilution from the potential exercise of stock
options when the effect is dilutive. The weighted average number of shares used
in the computation of earnings per share were 5,448,244 and 5,448,379 for the
three months and six months ended June 30,1996, respectively.
4. UNAUDITED PRO FORMA INFORMATION
The computation of pro forma total revenue, net income and net income per
share for the three months and six months ended June 30, 1995 prepared on the
basis as if the Reorganization had occurred on January 1, 1995 with an
adjustment in the level of commissions and royalties to related parties that
were not incurred after the Reorganization, an adjustment for interest expense
related to shareholder loans converted to common stock in conjunction with the
Company's initial public offering of common stock on October 12, 1995 and the
recording of income tax expense to reflect the conversion of the Company from
an S corporation to a taxable entity on October 12, 1995 follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30,1995
-------------- -------------
<S> <C> <C>
Historical total revenue . . . . . . . . . . . . . . . . . . . . . $ 6,315,000 $ 11,911,000
Revenue of Sugarloaf Marketing . . . . . . . . . . . . . . . . . 1,426,000 3,028,000
Pro forma adjustment to eliminate intercompany revenue . . . . . (281,000) (574,000)
-------------- -------------
Pro forma total revenue . . . . . . . . . . . . . . . . . . . . . $ 7,460,000 $ 14,365,000
============== =============
</TABLE>
8
<PAGE> 9
AMERICAN COIN MERCHANDISING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30,1995
-------------- -------------
<S> <C> <C>
Historical income before income taxes . . . . . . . . . . . . . . $ 616,000 $ 1,252,000
-------------- -------------
Pro forma adjustments:
Net loss of Sugarloaf Marketing . . . . . . . . . . . . . . . . (19,000) (41,000)
Adjust for change in level of commissions and
royalties to related parties . . . . . . . . . . . . . . . . . 372,000 849,000
Adjust for interest related to stockholder loans
converted to equity . . . . . . . . . . . . . . . . . . . . . 20,000 40,000
Eliminate minority interest and equity interest as a result of
acquiring remaining ownership interest in affiliated entities 52,000 86,000
Record amortization of cost in excess of assets acquired . . . . (25,000) (50,000)
Increase depreciation for assets acquired from
non-control group . . . . . . . . . . . . . . . . . . . . . . (9,000) (18,000)
-------------- -------------
Total adjustments to income before taxes . . . . . . . . . . 391,000 866,000
-------------- -------------
Pro forma income before income taxes . . . . . . . . . . . . . . . 1,007,000 2,118,000
Pro forma income tax expense at 38% . . . . . . . . . . . . . . . 383,000 805,000
-------------- -------------
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . $ 624,000 $ 1,313,000
============== =============
Weighted average shares outstanding (1) . . . . . . . . . . . . . 4,451,000 4,451,000
Pro forma net income per share . . . . . . . . . . . . . . . . . . $ 0.14 $ 0.29
============== =============
</TABLE>
(1) Shares used in computing pro forma net income per share are based upon
3,283,737 weighted average shares outstanding, common equivalent shares of
371,627, and 96,571 shares issued in connection with the conversion of
certain stockholder loans at the initial public offering price of $7.00 per
share and 699,149 shares issued to pay distributions in conjunction with
the Reorganization. Common equivalent shares consist of stock options,
determined using the treasury stock method. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued at prices below the anticipated public offering
price during a 12-month period prior to the proposed offering have been
included in the calculation as if they were outstanding for the entire
period (using the treasury stock method and the average price of the common
stock from October 16, 1995 through December 31, 1995) and the shares
issued in the initial public offering whose proceeds were used to pay
distributions to Control Group stockholders in connection with the
Reorganization have been included in the calculation (using the initial
public offering price) as if they were outstanding for the entire period.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for the historical information contained therein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in this section, and those discussed in the Company's
registration statement filed on Form SB-2 and Form 10-KSB for the year ended
December 31,1995.
GENERAL
Substantially all of the Company's revenue and gross profit is from vending
revenue and product and services revenue, which is derived from the operation
of Shoppes by the Company and its franchisees. As a result, the Company's
revenue and gross profit in a particular period is directly related to the
number of Shoppes in operation during the period.
RESULTS OF OPERATIONS
Prior to October 13, 1995 the Company had elected tax treatment as an S
corporation, while the combined affiliates were each organized as S
corporations, except for Southwest Coin Company which was organized as a
partnership. Accordingly, through October 12, 1995, no provisions were made
for income taxes since all income, deductions, gains, losses and credits were
reported on the tax returns of the owners. The S corporation status of the
Company terminated on October 12, 1995 and, thereafter, the Company became a
taxable entity.
The Company's total revenue for the first six months of 1996 increased 37.8%
to $16,417,000 from $11,911,000 for the same period in 1995. The Company
realized net income of $876,000 for the first half of 1996 compared to proforma
net income of $1,313,000 in the first six months of 1995. For the second
quarter of 1996 total revenue increased 33.1% to $8,403,000 as compared to
$6,315,000 for the same period in 1995. Net income for the quarter was $373,000
as compared to $624,000 of proforma net income for the second period of 1995.
Vending revenue increased $4,880,000 or 66.7% in the first half of 1996 to
$12,192,000 as a result of an increase in the average number of Shoppes in use
during the first half of 1996, which increased 127.3% over the average number
of Shoppes in use during the same period in 1995. During the first six months
of 1996, offices acquired in connection with the August 31, 1995 purchase of
Sugarloaf Marketing contributed $2,654,000 in vending revenue. In conjunction
with the purchase of Sugarloaf Marketing, the Company added 492 Shoppes.
Through the acquisition date, the Company accounted for its ownership interest
using the equity method of accounting. For the second quarter of 1996, vending
revenue increased $2,626,000 or 72.1% to $6,268,000 as compared to the same
period in 1995. The average number of machines in place during the second
quarter of 1996 increased by 128.8% as compared to the second quarter of 1995.
Sugarloaf Marketing offices contributed $1,325,000 in vending revenue during
the second quarter of 1996.Vending revenue for the second quarter of 1996 was
negatively impacted by a six week labor strike of two major supermarket chains
in Colorado. Colorado is one of the Company's largest markets with
approximately 13.2% of the Company's machine placements at June 30, 1996.
The Company's ability to generate increased vending revenue and achieve
higher levels of profitability will depend on its success in continuing to
increase the number of Shoppes in operation. The continued growth in the number
of Shoppes will depend, in part, upon the Company's success in securing
national and regional supermarket, mass merchandise and restaurant chain
accounts. The Company began a concerted marketing effort in August 1994 to
national and regional chain accounts and has entered into seven new agreements
with national and regional supermarket and mass merchandise chain accounts
covering the placement of Shoppes within the locations of such accounts. In
August, the Company signed an agreement with Wal*Mart through January 1, 2000,
appointing the Company as the principal operator of skill-crane vending
machines for Wal*Mart Stores, Inc. The Company and its franchisees currently
have approximately 300 skill-crane machines in Wal*Mart stores nationwide.
Under the terms of the agreement, an estimated 1,250 Wal*Mart stores will be
installed with skill-crane machines by the Company and its franchisees over the
next 18 months. Although the Company intends to enter into similar arrangements
with other national and regional supermarket and mass merchandise chain
accounts and with national and regional restaurant chain accounts, there can be
no assurance that it will be able to do so or that, to the extent it does so,
it will be able to persuade a significant number of managers within such chain
accounts to place a Shoppe within their store or other location.
Product and services revenue decreased $864,000 or 24.8% for the first six
months of 1996 as compared to the same period in 1995. Product sales to
Sugarloaf Marketing in the first six months of 1995 amounted to $533,000. The
Company also had combined product sales of $302,000 during the first six months
of 1995 to three franchisees that were purchased by the Company during the
third quarter of 1995 and first and second quarters of 1996, respectively.
Franchise royalties in 1996 decreased $15,000 or 2.3% as compared to amounts
realized during 1995.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
Equipment sales to franchisees during the first six months of 1996 amounted
to $958,000 as compared to $392,000 in equipment sales to franchisees in 1995.
In 1996, all Shoppes purchased by franchisees from the Company's primary
supplier of equipment are processed by the Company on a pass through basis. The
Company's charge to its franchisees for this service is minimal and intended to
cover the processing cost of coordinating the purchase. The Company did
negotiate a lower cost for Shoppes in 1996 as a result of this change in
procedure. Prior to 1996, franchisees purchased only Treasure and Fun Shoppes
from the Company. There were no initial franchise fees for the first six months
of 1996 as compared to $46,000 for the comparable period in 1995.
The cost of vending operations for the first six months of 1996 increased
$3,668,000 or 73.8% to $8,639,000. Vending operations' contribution to gross
profit for the first six months of 1996 increased by $1,212,000 or 51.8% to
$3,553,000 over vending operations gross profit realized for the same period in
1995. The vending gross profit achieved in the first half of 1996 was 29.1% of
vending revenue, as compared to 32% for the same period in 1995. For the first
six months of 1996, the Sugarloaf Marketing offices contributed $1,006,000 of
vending gross profit. For the second quarter of 1996, the cost of vending
increased $2,084,000 or 85.4% to $4,524,000. Vending gross profit realized
during the second quarter of 1996 was $1,744,000 or 27.8% as compared to
$1,202,000 or 33% for the second quarter of 1995. The fixed cost element of
cost of vending, which represents approximately 27% of total vending costs, was
consistent with the Company's plan for the second quarter of 1996. However the
margin achieved was negatively impacted primarily by the continuing under
performance of the Company's "Treasure Shoppe" machines and the labor strike at
two supermarket chains in Colorado.
Substantially all the Company's plush toys and certain other products
dispensed in the Company's SugarLoaf Toy Shoppes are produced by foreign
manufacturers and a majority are purchased directly by the Company from
manufacturers in the People's Republic of China ("China"). The Company also
purchases a substantial portion of the products for its other Shoppes from
vendors who obtain product from domestic and foreign manufacturers. As a
result, the Company is subject to changes in governmental policies, the
imposition of tariffs and import and export controls, transportation delays and
interruptions, political and economic disruptions and labor strikes which could
disrupt the Company's supply of products from foreign manufacturers. China
currently enjoys "most favored nation" ("MFN") status under U.S. tariff laws,
which allows for the most favorable category of U.S. import duties. The loss of
MFN status for China could result in a substantial increase in the import duty
of certain products manufactured in China, which could result in substantially
increased costs for certain products purchased by the Company. Although the
Company would attempt to mitigate any such increased cost by procuring its
product from other countries, it would likely incur substantially higher costs
and temporary disruptions in supply in the event that it becomes necessary to
do so.
Gross profit on product and service revenue for the first six months of 1996
decreased to $483,000 or 18.4% of product and service revenue, which is .9%
higher than the gross margin achieved for the same period in 1995. For the
second quarter of 1996 gross profit on product and service revenue increased to
$279,000 or 20.4% of product and service revenue, as compared to $272,000 or
14.3% of product and service revenue for the second quarter of 1995. The
increase in product margin for the second quarter of 1996 results primarily
from an increase in the price of certain categories of product offered to
franchisees and a significant reduction in discounts taken on products sold
during the quarter. Certain select bulk product was imported and sold during
the second quarter of 1996 with a higher margin than normal.
For the first six months of 1996, general and administrative expenses
increased $1,235,000 to $3,203,000 or 19.5% of revenue, as compared to
$1,968,000 or 18.4% of revenue for the comparable period in 1995. The increase
in general and administrative expenses results primarily from the acquisition
of Sugarloaf Marketing and other franchisees, additional operating and
satellite offices opened during the second quarter of 1996, the accelerated
placement of machines during the second quarter of 1996 and the additional
payroll and other costs associated with being a public company. General and
administrative expenses for 1995 includes $150,000 of commissions paid to the
Company's two major stockholders.
Interest expense decreased $65,000 to $91,000 in 1996 as compared to 1995.
The Company's interest expense is directly related to its level of borrowings
and changes in the underlying interest rates applicable to the borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources
historically have been cash flow from operations, borrowings under the
Company's bank credit facility and borrowings from the Company's majority
stockholders. These sources of cash flow have been offset by cash used for
investment in skill-crane machines and payment of long-term borrowings.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
Net cash provided by operating activities was $1,886,000 and $933,000 in
1996 and 1995, respectively. The Company anticipates that cash will continue to
be provided by operations as additional skill-crane machines are placed in
service. Cash required in the future is expected to by funded by existing cash
or borrowings under the Company's credit facilities.
Net cash used by investing activities was $3,964,000 and $385,000 in 1996
and 1995, respectively. Capital expenditures amounted to $3,265,000 and
$449,000 in 1996 and 1995, respectively, of which $2,660,000 and $342,000 was
represented by the acquisition of skill-crane machines. The acquisition of
franchisees in 1996 used $613,000.
Net cash provided by financing activities was $488,000 in 1996 as compared
to $208,000 of net cash used in financing activities during 1995. Financing
activities consist of advances and repayments on the Company's credit facility
and other debt obligations and S corporation distributions to owners.
Under its current revolving credit agreement, the Company may borrow up to
the lesser of $1,800,000 or a borrowing base defined by agreement, at the
bank's prime rate plus .5%. The revolving line of credit is available through
May 31, 1997, and at June 30, 1996 there was a principal amount of
approximately $1,689,000 outstanding. The credit agreement provides that
certain financial ratios and equity levels be maintained and places
restrictions on, among other things, the incurrence of additional debt
financing and the payment of dividends. The Company was in compliance with such
financial ratios and restrictions at June 30, 1996.
Under a new draw loan agreement with the bank, the Company may borrow up to
$1,200,000 at the bank's prime rate plus 1%. The Company intends to use the
draw loan to finance the acquisition of skill-crane machines and fund the
purchase of franchisees. The draw loan is available through May 31, 1997, and
at June 30, 1996 there was no outstanding balance. The unpaid principal balance
on the draw loan at May 31, 1997 will be repaid in eighteen monthly
installments.
In January 1996, the Company acquired the Indiana-based operations,
including 156 skill-crane machines, and territory of one of its franchisees,
Hoosier Coin Company, Inc., d/b/a Sugarloaf of Indiana. Under the terms of a
definitive purchase agreement, consideration for the acquisition including
inventory totaled approximately $500,000. Of this amount, $297,000 was paid in
cash with the balance being paid over a three year period in accordance with a
promissory note.
In May 1996, the Company acquired the skill-crane operations of
Colorado-based Northern Coin Company and the operating assets of A.F. Race,
Incorporated, a Colorado based skill-crane machine service company. Under the
terms of a definitive agreement, consideration for the acquisition totaled
approximately $466,000. Of this amount, $301,000 was paid in cash with the
balance being paid over a two year period in accordance with a promissory note.
In July 1996, the Company acquired the Utah-based operations, including 213
skill-crane machines, and territory of one of its franchisees, Sugarloaf of
Utah, Inc. Under the terms of a definitive purchase agreement, consideration
for the acquisition including inventory totaled approximately $938,000. Of this
amount, $505,000 was paid in cash with the balance being paid over a three year
period in accordance with a promissory note.
As acquisition opportunities arise, the capital resources of the Company may
be utilized to undertake such opportunities. The timing and nature of these
opportunities cannot be predicted; therefore, the financing of future
acquisitions may take a variety of forms.
Company management believes the Company's financial condition is strong and
that funds generated from operations and borrowings will be sufficient to meet
the Company's foreseeable operating and capital expenditure needs.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 22, 1996, at which the
stockholders elected seven directors to each serve until the next annual
meeting of stockholders and until his successor is elected and has qualified or
until such director's death, resignation or removal, and the ratification of
the selection of KPMG Peat Marwick LLP as independent auditors of the Company
for its fiscal year ending December 31, 1996. Votes were cast as follows:
<TABLE>
<CAPTION>
Votes Against
Votes For Or Withheld Votes Abstained Broker Non-Votes
--------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Election of Directors:
Jerome M. Lapin . . . . . . . . 4,829,118 16,500 Not Applicable Not Applicable
Randall J. Fagundo . . . . . . 4,829,118 16,500 Not Applicable Not Applicable
Abbe M. Stutsman . . . . . . . 4,829,118 16,500 Not Applicable Not Applicable
Richard D. Jones . . . . . . . 4,829,118 16,500 Not Applicable Not Applicable
J. Gregory Theisen . . . . . . 4,829,118 16,500 Not Applicable Not Applicable
Jim D. Baldwin . . . . . . . . 4,829,118 16,500 Not Applicable Not Applicable
John A. Sullivan . . . . . . . 4,829,118 16,500 Not Applicable Not Applicable
Ratification of KPMG Peat
Marwick LLP as independent
auditors for the fiscal year
ending December 31, 1996. . . . 4,845,618 None None None
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11.1 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
13
<PAGE> 14
AMERICAN COIN MERCHANDISING, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN COIN MERCHANDISING, INC.
By: /s/ Jerome M. Lapin
----------------------------------------
Jerome M. Lapin
President and Chief Executive Officer
By: /s/ W. John Cash
----------------------------------------
W. John Cash
Vice President, Chief Financial Office
Boulder, Colorado
August 9, 1996
14
<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
11.1 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
AMERICAN COIN MERCHANDISING, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1996
------------- -----------
<S> <C> <C>
EARNINGS PER SHARE:
NET INCOME . . . . . . . . . . . . . . . $ 373,000 $ 876,000
------------- -----------
COMMON SHARES OUTSTANDING . . . . . . . . 5,081,608 5,081,608
EFFECT OF SHARES ISSUABLE UNDER
STOCK OPTIONS USING THE
TREASURY STOCK METHOD . . . . . . . . . 366,636 366,771
------------- -----------
SHARES USED IN COMPUTING
EARNINGS PER SHARE . . . . . . . . . . 5,448,244 5,448,379
============= ===========
EARNINGS PER COMMON SHARE . . . . . . . . $ 0.07 $ 0.16
============= ===========
</TABLE>
(a) Primary and fully diluted earnings per share are the same.
(b) Net income per share for the three months and six months ended June 30,
1995 has been omitted because through August 31, 1995 the Combined
Companies were not a single entity with its own capital structure.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 938
<ALLOWANCES> 0
<INVENTORY> 3,662
<CURRENT-ASSETS> 4,898
<PP&E> 11,944
<DEPRECIATION> 3,706
<TOTAL-ASSETS> 16,192
<CURRENT-LIABILITIES> 4,527
<BONDS> 0
<COMMON> 51
0
0
<OTHER-SE> 9,845
<TOTAL-LIABILITY-AND-EQUITY> 16,192
<SALES> 15,712
<TOTAL-REVENUES> 16,417
<CGS> 5,858
<TOTAL-COSTS> 11,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 1,413
<INCOME-TAX> 537
<INCOME-CONTINUING> 876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 876
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
